Modeling and Optimization of Deep and Machine Learning Methods for Credit Card Fraud Risk Management

Slavi Georgiev, Maya Markova, Vesela Mihova, Venelin Todorov

As digital payment infrastructures expand, the incidence of card-not-present fraud has become a major source of operational and financial risk for banks, payment processors, and merchants. In response, financial institutions increasingly rely on data-driven decision systems, yet fraudsters continuously adapt their strategies to evade conventional rule-based controls. A promising way to strengthen risk management is to model transactional data so as to uncover non-trivial, high-dimensional patterns characteristic of fraudulent behavior and to embed these models into real-time decision pipelines. In this work, we develop and compare a suite of learning-based fraud detectors, including a convolutional neural network and several machine learning classifiers, within a unified quantitative risk-management framework. The problem is formulated as a supervised classification task within a quantitative risk management framework, where the cost of missed fraud is particularly critical. The mathematical contribution is methodological rather than architectural: we design a leakage-safe and prevalence-faithful evaluation protocol for extremely imbalanced binary classification, combine cross-validated hyperparameter optimization with risk-aligned model selection based on metrics such as recall and Matthews correlation coefficient, and quantify uncertainty by bootstrap confidence intervals and paired McNemar tests. In addition, we connect statistical evaluation with deployment-time decisioning through a decision-theoretic, cost-sensitive threshold rule, showing how institution-specific false-positive and false-negative costs determine the operating point of the classifier. Because fraudulent transactions constitute only a small proportion of the total volume, we employ resampling strategies to mitigate severe class imbalance and systematically calibrate the models via cross-validated hyperparameter optimization. The empirical analysis on real transaction data shows that carefully tuned deep and ensemble methods can achieve strong fraud-detection performance, while the proposed framework clarifies which performance differences are statistically meaningful and which operating points are most suitable under institution-specific false-positive and false-negative costs.